I'm guessing that this is a homeowners coverage case. Couldn't find any further information on the core facts on eCourts or through New York State Law Reporting Bureau's Slip Decisions Search page.

Plaintiff-insureds sued Allstate for breach of contract. Their verified complaint also asserted causes of action for punitive damages and negligent and intentional infliction of emotional distress. Allstate unsuccessfully moved to dismiss those causes of action.

In REVERSING Nassau Supreme's order and dismissing the punitive damages and infliction of emotional distress causes of action, the Second Department held:

Contrary to the plaintiffs' contention, punitive damages are not recoverable in an ordinary breach of contract case, as their purpose is not to remedy private wrongs but to vindicate public rights. Punitive damages are only recoverable where the breach of contract also involves a fraud evincing a high degree of moral turpitude, and demonstrating such wanton dishonesty as to imply a criminal indifference to civil obligations, and where the conduct was aimed at the public generally (see New York Univ. v Continental Ins. Co, 87 NY2d 308, 315-316; Rocanova v Equitable Life Assur. Socy. of U.S., 83 NY2d 603, 613). Punitive damages are available where the conduct associated with the breach of contract is first actionable as an independent tort for which compensatory damages are ordinarily available, and is sufficiently egregious to warrant the additional imposition of exemplary damages. A party must demonstrate not only egregious tortious conduct, but also that such conduct was part of a pattern of similar conduct directed at the public generally (see New York Univ. v Continental Ins. Co, 87 NY2d at 316; Rocanova v Equitable Life Assur. Socy. of U.S., 83 NY2d at 613). Here, the defendant showed that its conduct was not egregious or of high moral turpitude, and thus was not actionable as an independent tort. Furthermore, there is no evidence of a pattern of egregious conduct directed toward the public at large.

The Supreme Court also erred in denying that branch of the defendant's motion which was pursuant to CPLR 3211(a)(7) to dismiss the third cause of action, alleging negligent and intentional infliction of emotional distress, for failure to state a cause of action. To establish liability for the intentional infliction of emotional distress, the plaintiffs were required to show that the defendant's conduct was "so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency" (Ruggiero v Contemporary Shells, 160 AD2d 986, 987; see Freihofer v Hearst Corp., 65 NY2d 135, 143). That same test has been applied to causes of action for the negligent infliction of emotional distress (see Chime v Sicuranza, 221 AD2d 401; Burrell v International Assn. of Firefighters, 216 AD2d 346). Here, accepting the allegations of the complaint as true, they do not allege conduct so outrageous in character, and so extreme in degree, as to state a cause of action for negligent or intentional infliction of emotional distress (see Curry v Dollard, 52 AD3d 642).

Nothing really new here. New York remains a jurisdiction in which insurance coverage disputes do not ordinarily support causes of action for either punitive damages or negligent/intentional infliction of emotional distress.

When an insured is not cooperating in the defense of a suit against him that alleges bodily injuries, at what point does New York Insurance Law § 3420(d) require the insurer timely to disclaim coverage? Judge Ciparick, who wrote this opinion for the Court of Appeals, said it best: "Fixing the time from which an insurer's obligation to disclaim runs is difficult." Especially in non-cooperation situtations, such as this.

Continental insured Staten Island dentist Terrance Stradford, who was sued for dental malpractice in two separate actions. Over the course of nearly six years from 1998 through 2004, Stradford cooperated only sporadically with Continental in the defense of those actions. In July 2004, Continental mailed Stradford two detailed letters -- one for each underlying action -- setting forth his history of noncompliance, evasion and broken commitments. Those letters also demanded that Stradford schedule a meeting with newly-retained counsel Stradford himself had demanded be retained for a date on or before August 13, warned that further non-cooperation "may imperil" his coverage, and, given adverse expert findings regarding Stradford's care of the underlying defendants, recommended that he consent to settlement of both actions. On August 11, 2004, Continental received both letters back as "unclaimed" (Stradford and his former employee, Christina Hachadoorian, apparently being preoccupied with other matters at that very time).

Approximately two months later, on October 13, 2004, Continental's outside counsel sent a disclaimer letter to Stradford. Two days later, Continental commenced this action, seeking a declaratory judgment that it had no duty to defend or indemnify Stradford in the two underlying dental malpractice actions. Continental's decision to disclaim was bolstered by a declaratory judgment issued on June 1, 2004 in two other dental malpractice actions then pending against Stradford. In that DJ action, the court had held that Stradford's failure to respond to multiple letters seeking his cooperation and his absence on trial dates constituted sufficient grounds for a disclaimer of coverage. Stradford never appeared in this DJ action, but the two underlying plaintiffs, named as defendants in this DJ, contested Continental's disclaimers.

Following discovery, the parties moved and cross-moved for summary judgment, the defendants contending that Continental's disclaimer was untimely or that it had not sustained its burden of proving Stradford's non-cooperation. Richmond Supreme granted Continental's motion, concluding that Stradford was not entitled to defense and indemnification because of his multiple breaches of the the cooperation clause. In a 3-2 decision, the Second Department reversed, the majority holding that Continental had sufficient information to support a disclaimer of coverage not later than August 11, 2004, when its letters to Stradford came back marked unclaimed and that Continental's subsequent two-month delay in disclaiming was not "as soon as reasonably possible" in violation of Insurance Law § 3420(d) as a matter of law. Continental appealed.

The Court of Appeals MODIFIED by denying the defendants' cross motion for summary judgment:

Even if an insurer possesses a valid basis to disclaim for non-cooperation, it must still issue its disclaimer within a reasonable time (see 14 Couch on Insurance 3d § 199:69). When construing Insurance Law § 3420 (d), which requires an insurer to issue a written disclaimer of coverage for death or bodily injuries arising out of accidents "as soon as is reasonably possible," we have made clear that timeliness almost always presents a factual question, requiring an assessment of all relevant circumstances surrounding a particular disclaimer (First Fin. Ins. Co. v Jetco Constr. Corp., 1 NY3d 64, 69 [2003]; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1030 [1979]; Allstate Ins. Co. v Gross, 27 NY2d 263, 270 [1970]). One of those circumstances is the time necessary for an insurer to conduct a prompt investigation into those grounds supporting a potential disclaimer (see Gross, 27 NY2d at 270; First Fin. Ins. Co., 1 NY3d at 69). Although we have declined to provide a "fixed yardstick" against which to measure reasonableness of a delay in disclaiming coverage (see id. at 70), we have said that cases in which the reasonableness of an insurer's delay may be decided as a matter of law are exceptional and present extreme circumstances (seeHartford, 46 NY2d at 1030; Gross, 27 NY2d at 270). This is not such a case.

Fixing the time from which an insurer's obligation to disclaim runs is difficult. That period begins when an insurer first becomes aware of the ground for its disclaimer (see First Fin. Ins. Co., 1 NY3d at 68-69, quoting Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1056 [1991]). But unlike cases involving late notice of claims (see id. at 66-67; Hartford, 46 NY2d at 1029; Gross, 27 NY2d at 268) or other clearly applicable coverage exclusions, an insured's non-cooperative attitude is often not readily apparent. Indeed, as here, such a position can be obscured by repeated pledges to cooperate and actual cooperation.

The challenge of setting an appropriate date is only heightened by the heavy burden that an insurer seeking to establish a non-cooperation defense must carry (see Thrasher v U.S. Liab. Ins. Co., 19 NY2d 159, 168-169 [1967]; accord Matter of Empire Mut. Ins. Co. [Stroud], 36 NY2d 719, 721 [1975]). To further this State's policy in favor of providing full compensation to injured victims, who are unable to control the actions of an uncooperative insured, insurers must be encouraged to disclaim for non-cooperation only after it is clear that further reasonable attempts to elicit their insured's cooperation will be futile (see Thrasher, 19 NY2d at 168; see also Matter of Liberty Mut. Ins. Co. v Roland-Staine, 21 AD3d 771, 772 [1st Dept 2005] ["strict[] scrutin[y]" of facts supporting non-cooperation defense required to protect "innocent injured parties from suffering the consequences of a lack of coverage"]). In some cases, such as where an insured openly disavows its duty to cooperate (see e.g. Allcity Ins. Co. v 601 Crown Street Realty Corp., 264 AD2d 315, 316-317 [1st Dept 1999]) little time is needed to evaluate the relevant non-cooperative conduct before disclaiming. But here, where an insured has punctuated periods of non-compliance with sporadic cooperation or promises to cooperate, some reasonably longer period for analysis may be warranted.

The Appellate Division majority acknowledged that even after June 1, 2004, when Continental received a declaratory judgment that it was entitled to disclaim coverage in the O'Halloran and Shields actions, the carrier "was continuing to pursue its heavy burden" of attempting to bring about Stradford's compliance in the two actions relevant here (see 46 AD3d at 601). The court also found that the time for disclaimer ran from August 11, 2004, the date when what became Continental's final letters to Stradford were returned unclaimed. Following that date, there is no indication that the company engaged in further communication with Stradford. Thus, on these facts, we agree with both of the Appellate Division's conclusions.

Contrary to the Appellate Division, however, we conclude that a question of fact remains regarding the amount of time required for Continental to complete its evaluation of Stradford's conduct in the two underlying actions. In this case, the reasonableness of an approximately two-month delay to analyze the pattern of obstructive conduct that permeated the insurer's relationship with its insured for almost six years presents a question of fact that precludes entry of summary judgment for either plaintiff or for defendants (see First Fin. Ins. Co., 1 NY3d at 69 ["[I]nvestigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer"]; Hartford, 46 NY2d at 1030 ["[A] two-month delay may often be easily justified, if in fact there be justification"]).

Thursday, November 27, 2008

It's not easy finding a case that has something to do with both insurance coverage and Thanksgiving.

55-year old Stanley Kostanek was a chef at the Hotel Piccadilly in Times Square, where the Marriott Marquis reportedly now stands. On Thanksgiving Day, November 26, 1953, Kostanek was "unusually rushed in his work", and around 6:00 p.m. that day, he lifted a pan containing about 50 pounds of turkey. While carrying the pan towards a steam table he felt a sharp pain in his chest and had to put the pan down. The decision reports that Kostanek rested for a short time and drank a little cognac, after which he felt better and he continued to work until his normal quitting time. The next day he felt the pain again, when he stretched and lifted a heavy stack of plates. Again he rested a few minutes, drank a little cognac and continued working. He was off from work on Saturday, and upon arising Sunday morning, he felt a sharp pain in his chest and was hospitalized later that day. Kostanek was released from the hospital on December 19, 1953, and recuperated at home until February 1, 1954, when he again suffered a severe heart attack and was hospitalized for a period of five more days.

Physicians for the claimant testified that he had suffered a coronary thrombosis on Thanksgiving Day, resulting in a myocardial infarction on November 29, 1953, and an episode of coronary insufficiency on February 1, 1954, all caused by the physical and emotional strain involved in the events of November 26 and 27, 1953. The medical expert for the workers' compensation carrier testified that the events occurring at work could not have caused the heart attack.

The Workers' Compensation Board apparently found in favor of the claimant and awarded compensation benefits, and the Third Department affirmed their decision and award, holding:

This conflict of medical opinion was resolved by the board in favor of the claimant, and its findings of accident and causal relationship are supported by substantial evidence.

I hope your Thanksgiving was neither unusually rushed nor as stressful as Mr. Kostanek's of 1953.

Under New York law, the oft-mispronounced and oft-mispelled doctrine of spoliation of evidence provides that sanctions may be appropriate where a litigant intentionally or, under some circumstances, negligently, disposes of crucial items of evidence involved in an accident before an adversary has had an opportunity to inspect them. One such sanction is the dismissal of the action. However, the nature and extent of any penalties to be imposed lie in the Court’s discretion.

This case involved an allegedly defectively designed solenoid valve in an attic steambath generator that failed and caused water damage. Defendants Steamaster and Invensys moved to dismiss the action based on spoliation of evidence. The solenoid valve was still available and had been inspected by the parties. Piping leading to that valve, however, had been removed and cut up into small pieces.

The evidence that was destroyed was the piping leading to the unit. Defendants claim that, without the pipe to test, they have been unduly prejudiced in their ability to mount an adequate defense. In Kirkland v New York City Housing Authority (236 AD2d 170 [lst Dept 1997]), the court distinguished between claims based on negligence and claims based on design defects. In that case, the court stated that, whereas the product in question itself would be the best and most conclusive evidence of any design defect, the existence of any such defect is a factual issue that can be proven by circumstantial evidence.

In the instant case, defendants are being sued for a design defect in the solenoid valve installed as part of a steam generator unit. The valve in question has not been destroyed, and has been examined by the parties. If defendants can prove, as they assert, that there was no design or manufacturing defect in the valve or the unit, they would prevail in the main action. Defendants are not required to prove an alternate theory of possible cause for the accident. The question as to whether or not the pipe was insulated, the thrust of this defense argument, may be assertable via evidence other than the actual pipe, such as eyewitness accounts and installation bills and receipts.

* * * * *

In the instant matter, it would be inappropriate to dismiss the main action, which is based on a design defect of a valve, because the valve has not been spoliated and has been inspected by the litigants.

Homeowners insurance policies exclude liability coverage for "bodily injury to you [the named insured(s)], and if residents of your household, your relatives, and persons under the age of 21 in your care or in the care of your resident relatives." The purpose of this "BI to insured" exclusion is to disincentivize collusive lawsuits that target the HO policy and its indemnification dollars.

In-laws are relatives, whether one likes it (or them) or not. In this case, plaintiff, the daughter-in-law of State Farm's named insured, apparently sued the public administrator of her father-in-law's estate (the named insured presumably having died intestate, i.e., without a will) for personal injuries she had sustained as a result of the named insured's negligence and recovered a money judgment against the estate. Plaintiff then commenced this action pursuant to Insurance Law § 3420(a)(2) recover that unsatisfied judgment from State Farm under the named insureds' homeowners policy.

In AFFIRMING the Suffolk County Supreme's order granting summary judgment to State Farm, the Second Department held:

On their motion, inter alia, for summary judgment, the defendants State Farm Fire and Casualty Company and State Farm Insurance Companies (hereinafter together the State Farm defendants), made a prima facie showing of entitlement to judgment as a matter of law. The State Farm defendants demonstrated that the plaintiff, the named insureds' daughter-in-law, who resided in the home of the named insureds at the time of the incident giving rise to her underlying personal injury action against the named insureds, was a resident "relative" of the named insureds. Thus, she was within an exclusion from coverage contained in the homeowner's insurance policy State Farm issued to the named insureds (see Korson v Preferred Mut. Ins. Co., 39 AD3d 483, 484; Randolph v Nationwide Mut. Fire Ins. Co., 242 AD2d 889, 889-890; Smith v Pennsylvania Gen. Ins. Co., 32 AD2d 854, affd 27 NY2d 830; Eisner v Aetna Cas. & Sur. Co., 141 Misc 2d 744, 745). In opposition to the State Farm defendants' motion, the plaintiff failed to raise a triable issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320). To the extent that McGuinness v Motor Veh. Acc. Indem. Corp. (18 AD2d 1100), may be inconsistent with this determination, it should not be followed.

Sunday, November 23, 2008

Spotted this over at Dave Gottlieb's CPLR Blog. Not a coverage case, but relevant to coverage litigation.

Didn't realize this, but until last week, the rule in the Second Department had been that a failure to state a cause of action defense was not properly asserted in an answer as an affirmative defense but only via a motion to dismiss pursuant to CPLR Rule 3211(a)(7). The Second Department has now abandoned that rule, holding that in the absence of a pre-answer motion, a defendant may assert the defense of failure to state a cause of action in her answer.

In coverage litigation, the question sometimes arises of what defenses the insurer is obligated to assert as "affirmative defenses" in its answer. My office uses this rule of thumb: any substantive coverage defenses that are based on policy exclusions or conditions we assert as affirmative defenses. The Second Department offers this explanation of what an affirmative defense is:

Affirmative defenses, such as those set forth in CPLR 3018(b), as a general rule, would be "deemed waived if not raised in the pleadings" (Surlak v Surlak, 95 AD2d 371, 383). CPLR 3018(b) includes two alternative definitions of an affirmative defense. In this regard, an affirmative defense is any matter "which if not pleaded would be likely to take the adverse party by surprise" or "would raise issues of fact not appearing on the face of a prior pleading" (CPLR 3018[b]). CPLR 3018(b) lists those commonly referred to as traditional affirmative defenses, but concludes that "[t]he application of this subdivision shall not be confined to the instances enumerated." Therefore, the list of affirmative defenses included in CPLR 3018(b) is not all inclusive.

Question for the readers: what about a coinsurance defense, i.e., when the defendant insurer contends that the plaintiff insurer owes either primary or co-primary insurance to a mutual insured? Something that must be asserted as an affirmative defense?

WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization, including any person or organization shown in the schedule above, (called additional insured) whom you are required to add as an additional insured on this policy under a written contract or agreement; but the written contract or agreement must be:

Currently in effect or becoming effective during the term of this policy; and

Executed prior to the "bodily injury", "property damage" or "personal and advertising injury".

Burlington Insurance Company insured Manlyn Development Corp, which subcontracted drywall and ceiling work on a commercial construction project to New York Interiors. The subcontract was memorialized in a purchase order, dated June 26, 2003, which required New York Interiors to carry CGL insurance of at least $1 million and name Manlyn as an additional insured on a certificate of insurance (COI).

TheCOI was dated June 3, 2003 (23 days before the purchase order date). Although the purchase order was dated June 26, 2003, Manlyn did not sign and authorize it until July 9, 2003; New York Interiors signed the purchase order on July 23, 2003.

On June 27, 2003 (one date after the purchase order was dated but on the same date New York Interiors began its work), a pedestrian fell through an open sidewalk cellar door and was injured. The pedestrian sued Manlyn and New York Interiors, and Burlington tendered Manlyn's defense and indemnification in that action to Utica First, which rejected the tender based on the fact that the purchase order was not signed until after the accident. Burlington eventually settled the personal injury action for $62,500 and brought this action to recover that amount plus $56, 122.85 it spent in defending Manlyn.

Both insurers moved for summary judgment. Burlington argued that although the purchase order was not signed prior to the accident date, all of the essential terms had been agreed upon, and New York Interiors had begun work on the day of the accident. Burlington argued that partial performance renders a contract executed within the meaning of the policy.

In denying Utica First's motion, Nassau County Supreme Court Justice Thomas Phelan held, in effect, that a contract need not be signed to be considered "executed":

Utica argues that the New York Interiors' contract with Manyn was not executed prior to the accident because it had not been signed. However, the term executed may have a variety of different meanings depending upon the context in which it is used. The term "executed contract" may refer to one that has been fully performed by the parties (Black' s Law Dictionary, 6th Ed. 1990). However, to "execute" a contract may also mean "to perform all the necessary formalities, as to make and sign the contract" (Id). Unless the contract is within the statute of frauds, a writing is not one of the formalities necessary to the formation of the contractt. Thus, where the parties discuss a writing, they may intend not to be bound until the writing is executed, or the writing may serve as a convenient memorial of an agreement already reached (Wise Co. v. Wecoline Products, Inc., 286 NY 365 (1941)).

A reasonable businessperson would expect that, under the blanket additional insured endorsement, other contractors would be additional insureds if New York Interiors was contractually obligated to obtain insurance for their benefit. The purpose of the prior written contract provision is simply to prevent a fraudulent scheme where the contractors agree to name one of the parties as an additional insured after the accident. The New York Interiors contract with Manlyn did not expand the liabilty assumed by Utica because of the blanket additional insured endorsement. Indeed, an insurer may assume even liabilties which arose before the policy date, provided there is no fraud or concealment by the insured (Appelman Insurance Law and Practice § 4266). A fortiorari, provided there is no fraud by the named insured and the other contractor, a writing memorializing a prior agreement to name an additional insured may be signed within a reasonable time after the loss.

This part of Justice Phelan's ruling seems to be at odds with the First Department's decision in Rodless Props., L.P. v Westchester Fire Ins. Co., 40 AD3d 253 (1st Dept. 2007), in which the First Department held that the undefined term "executed" as used in a blanket AI endorsement is not ambiguous and means either a contract that has been signed or a contract that has been fully performed by both parties. In attempting to distinguish Rodless Properties, Justice Phelan thought it important that in that case there was no proof of an oral contract to name the owner as an additional insured because the certificate of insurance was issued as a matter of information only and was tendered after the loss. If Utica First appeals, my money will be on a reversal/modification of this part of the decision.

Based on testimony of New York Interior's owner that New York Interiors employees opened the sidewalk cellar door to deliver materials to the site on the day of the accident, the court found that the accident arose out of New York Interiors' work for Manlyn to trigger AI coverage under the Utica First policy. However, in denying summary judgment to Burlington, Justice Phelan found that there was a triable issue as to whether Manlyn and New York Interiors fraudulently agreed to name Manlyn as an additional insured on New York Interiors' policy:

While the certificate of insurance is dated over thee weeks before the purchase order, there is no evidence as to when the certificate was tendered to Manlyn. Moreover, the purchase order is dated only one day before the accident. Because of the unusual chronology of the documents, the court cannot conclude as a matter of law that no fraud took place. Accordingly, plaintiffs ' cross-motion for summary judgment is denied.

May a directors' and officers' (D&O) liability policy include a provision that places the duty to defend upon the insured rather than the insurer?

Answer:

No, a D&O liability policy may not include a provision that places the duty to defend upon the insured, rather than the insurer.

Analysis:

* * * A policy that places the duty to defend upon an insured would run afoul of Regulation 107 (11 NYCRR Part 71) because it would limit the availability of coverage for legal defense costs. By placing the duty upon the insured, the policy would condition defense cost coverage upon the insured taking charge of the defense. And, even where, as is the case with the proposed ABC policy, the policy provides coverage for attorneys’ fees and other direct costs of litigation, the insurer transfers to the insured the insurer’s duty to absorb the administrative costs of litigation, such as the cost of managing, controlling and otherwise overseeing the litigation. The ABC filing, in particular, excludes any coverage for compensation to directors, officers or employees of the insured, thereby negating any defense cost coverage for representation by the insured’s in-house counsel.

Although the inquiry concerns the duty to defend, the Department notes that the ABC policy also limits the availability of coverage for legal defense costs by providing allocation of defense costs between covered and noncovered matters. As noted above, where the insurer has the duty to defend, in an action in which at least one claim may possibly fall within the coverage, the insurer has the duty to defend all claims in the action. Clearly, the cost allocation provision of the ABC policy affords less defense costs coverage to the insured than a policy under which the insurer bears the duty to defend. Moreover, Regulation 107 does not authorize any allocation of defense costs. Given these circumstances, the Department will not approve such a provision * * *.

May an individual who receives a stipend under the federal Foster Grandparent Program, and is subsequently injured in a motor vehicle accident, receive compensation for the stipend through a lost earnings claim under the no-fault coverage of the vehicle in which she was a passenger, or may the claim be denied by the no-fault insurer based upon the Domestic Volunteer Services Act of 1973, 42 U.S.C. § 5058?

Answer:[Yes], [a]n individual receiving a stipend under the federal Foster Grandparent Program who is injured in a motor vehicle accident may receive compensation for the stipend through a lost earnings claim made under the no-fault coverage of the vehicle in which the inquirer was traveling. The federal statute, 42 U.S.C. § 5058, is not applicable and does not preempt the New York no-fault law with respect to reimbursement of the lost earnings claim.

Analysis:

The New York no-fault law, enacted by the New York Legislature as Article 51 of the Insurance Law, is a mechanism through which individuals who are injured in automobile accidents may receive prompt compensation for substantially all resulting economic losses without regard to fault.

The lost earnings claim for the stipend which the Foster Grandparent Program affords was initially denied based on the Domestic Volunteer Services Act of 1973, 42 U.S.C. § 5058. That statute provides:

Notwithstanding any other provision of law, no payment for supportive services or reimbursement of out-of-pocket expenses made to persons serving pursuant to subchapter II of this chapter shall be subject to any tax or charge or be treated as wages or compensation for the purposes of unemployment, temporary disability, retirement, public assistance, workers’ compensation, or similar benefit payments, or minimum wage laws. This section shall become effective with respect to all payments made after October 1, 1973.

“Subchapter II” in this context refers to the subchapter which enacts the Foster Grandparent Program. Whether the federal statute is applicable to the New York no-fault law, and therefore preempts the New York no-fault law with respect to the availability of lost earnings for stipends under the program, is thus determinative of whether the lost earnings claim for lost stipends may be denied. Since no-fault reparations payments are not referenced directly in the statutory definition, the question therefore turns on whether the New York no-fault law is deemed to be subject to the federal statute with respect to the term “similar benefit payments.”

It is the Department’s view that the federal statute does not preempt coverage for lost stipends in this instance, given the no-fault law’s distinction from the “similar benefit payments” provision enumerated in the federal statute. Insurance Law § 5102(a)(2) (McKinney 2000) specifically enumerates loss of earnings for reimbursement as:

(2) Loss of earnings from work which the person would have performed had he not been injured, and reasonable and necessary expenses incurred by such person in obtaining services in lieu of those that he would have performed for income, up to two thousand dollars per month for not more than three years from the date of the accident causing the injury. An employee who is entitled to receive monetary payments, pursuant to statute or contract with the employer, or who receives voluntary monetary benefits paid for by the employer, by reason of the employee’s inability to work because of personal injury arising out of the use or operation of a motor vehicle, is not entitled to receive first party benefits for “loss of earnings from work” to the extent that such monetary payments or benefits from the employer do not result in the employee suffering a reduction in income or a reduction in the employee’s level of future benefits arising from a subsequent illness or injury. (Emphasis added.)

Pursuant to this provision, no-fault reimbursement for loss of earnings would include stipends for work performed had the person not been injured. The federal statute creating the Foster Grandparent Program exempts stipends earned from specifically enumerated programs providing other types of benefits, such as workers’ compensation payments, and other non-specified programs that would provide “similar benefit payments.” But the New York no-fault law was enacted with a broad mandate to provide reparations for a more comprehensive range of earnings than the programs referenced in the federal statute. The concept of basic economic loss defined in Insurance Law § 5102 addresses a broad spectrum of losses for which the no-fault law provides compensation, and the statute does not limit earnings reparations to employees’ wages alone. The second sentence of Insurance Law § 5102(a)(2) distinguishes certain “monetary payments” to which an “employee” is entitled, indicating that the language of the previous sentence refers to loss of earnings from broader sources than employment alone. The wording of Insurance Law § 5102(a)(2) thus makes clear that loss of earnings is to be compensated without regard to the kinds of limitations and exemptions described in the federal statute at issue.

Therefore, because the term “similar benefit payments” under the federal statute is silent as to whether such payments under the no-fault law would be “similar” so as to exclude reimbursement for lost stipends under the federal program, it is the view of the Department that the no-fault coverage is not a similar benefit to any of the benefits specified in the federal act, and that the no-fault law’s intent to provide reimbursement for a loss of earnings logically and naturally encompasses the loss of stipends under the federal statute. Accordingly, the insurer here should honor the claim.

For further information you may contact Principal Attorney Lawrence M. Fuchsberg at the New York City office.

Does the Insurance Law or regulations promulgated thereunder require an insurer or its agent to purge consumer’s personal information from its records after giving the consumer a quote for an automobile insurance policy, when the transaction does not result in the purchase of insurance?

Under what circumstances, if any, may an insurer or its agent disclose to third parties personal information that it receives about a consumer for an insurance quote, when the transaction does not result in the purchase of insurance?

Answers:

No. Neither the Insurance Law nor regulations promulgated thereunder require an insurer or its agent to purge information it receives from persons who request an insurance quote. In fact, the Department’s regulations require the insurer to maintain certain information for minimum specified periods.

Does the Insurance Law or regulations promulgated thereunder define the term “replacement cost”?

Does an insured’s acceptance of an insurer’s check for payment based on an “estimated claim” extinguish the insured’s right to seek additional payments from the insurer?

Answers:

No. The term “replacement cost” is not defined in either the New York Insurance Law or Insurance Department regulations.

As general matter, if the payment made on the estimated claim represents payment of only the undisputed elements of the claim, the insured may accept the check, and then seek payment for the disputed amount within the limitations of the insured’s insurance policy. If the payment represents a full settlement of the claim, and the insured accepts the payment, then the insured may not seek additional payment for damages sustained.

When a claimant elects to retain title to an automobile that is a total loss - under which the vehicle’s salvage value will be deducted from the settlement payment - is the amount of sales tax added to the value of the vehicle prior to the accident, or added after the deduction for the salvage value has reduced the value of the vehicle?

Must an automobile insurance company include title transfer fees as part of a settlement for the actual cash value of a motor vehicle upon its total loss?

Answers:

The amount of sales tax is added to the value of the vehicle prior to the accident, in accordance with the definition of actual cash value in § 216.6(b)(2) of 11 NYCRR 216 (Regulation 64), before the deduction for the salvage value is taken.

No. An insurance company is not required under the New York Insurance Law or regulations promulgated thereunder to include title transfer costs associated with the purchase of a replacement vehicle in determining the actual cash value of a motor vehicle that has suffered a total loss. However, there is also no prohibition in paying that extra sum as a component of loss, so long as it is done in a uniform and non-discriminatory manner.

Facts:

This is an example of a situation where a first- or third-party claimant retains ownership of an automobile that has been declared a total loss, which had a pre-loss value of $1,000 and a post-loss value of $100. The claimant transfers the automobile to the insurer for disposal. The insurer would pay $1,000 plus sales tax on the pre-loss value of $1,000. However, where the claimant elects to retain the salvage automobile, and the insurer deducts the $100 salvage value from the settlement payment, it is asked whether the insurer should pay sales tax calculated on $1,000, the actual cash value just prior to the loss, or on the $900 paid after deducting the $100 salvage value.

It has been the insurer’s practice to include a $50 title transfer fee as part of its settlement payments to first- and third-party claimants whose automobiles have been declared total losses. The insurer has learned of an opinion of the New York Insurance Department’s Office of General Counsel dated March 12, 2001, which concluded that an automobile insurance company need not include title cost in determining the total loss claim settlement with its insured. It is asked whether that opinion still represents the Department’s position.

(b) Actual cash value, unless otherwise specifically defined by law or policy, means the lesser of the amounts for which the claimant can reasonably be expected to:

(1) repair the property to its condition immediately prior to the loss; or

(2) replace it with an item substantially identical to the item damaged. Such amount shall include all monies paid or payable as sales taxes on the item repaired or replaced. . . . [Emphasis added.]

Accordingly, in calculating the actual cash value of a vehicle upon a total loss where the claimant elects to retain the salvage, the definition of actual cash value in § 216.6(b)(2) specifies that the cost of replacement includes sales tax. The salvage value of the insured vehicle upon a total loss is a deduction from its actual cash value and, therefore, it is taken after the sales tax has already been added into the calculation of the vehicle’s replacement cost. Applying this formula to the hypothetical example posed, the insurance company would add the amount of sales tax to the $1,000 pre-loss value of the automobile, and then deduct the salvage value to arrive at the amount of the claim payment.

Concerning the question of title transfer fees, there is no requirement in the New York Insurance Law or Regulation 64 that an insurance company include a title transfer fee in the calculation of an automobile’s actual cash value in New York. But there is also no prohibition in paying such fee as a component of loss, as many insurers do so long as it is done in a uniform and non-discriminatory manner.

As the analysis above indicates, this opinion is consistent with the conclusions of the March 12, 2001 Department opinion that this inquiry references. Consequently, that opinion remains the position of the Department.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.

At issue, of course, is whether the tolling provision of 11 NYCRR § 65-3.9(c), which refers only to "an applicant", also applies to assignees. The Appellate Term said it did. We'll see what the Appellate Division says in a few months.

In July 2003, a tenant in plaintiff's building commenced a personal injury action against plaintiff, serving the summons and complaint on the New York Secretary of State, the plaintiff's statutory and designated agent for service of process. Plaintiff's sole member had moved since first organizing the LLC but did not file a change of address with the Secretary of State reportedly because the lawyer who formed the company did not tell him he was required to do so. Consequently, plaintiff did not learn about the lawsuit until it was served directly with a motion for default judgment in April 2004, at which time plaintiff notified its CGL insurer, defendant Insurance Corporation of Hannover, of the claim and suit.

ICH disclaimed coverage based on plaintiff's failure to provide notice of suit "as soon as practicable". Plaintiff commenced this DJ action in state court for defense and indemnification coverage in relation to the underlying action, and ICH removed the action to federal court. On motion, the District Court dismissed plaintiff's complaint, holding that ICH's disclaimer was valid. Plaintiff appealed to the United States Court of Appeals for the Second Circuit, which certified to the following question to the New York Court of Appeals:

"Upon all the facts of this case, given the terms of the insurance policy and the reason for the insured's failure to give more prompt notice of the lawsuit to the insurer, should the insurer's disclaimer of coverage be sustained?"

In a unanimous decision, the Court of Appeal answered the certified question with a yes, holding that a liability insurer is entitled to disclaim coverage when the insured, because of its own error in failing to update the address it had listed with the Secretary of State, did not comply with a policy condition requiring timely notice of a lawsuit. While acknowledging that the plaintiff's mistake was understandable, that it caused no prejudice to ICH, and that the loss of insurance coverage was a a harsh result, the Court nonetheless reasoned:

Briggs relies on Agoado Realty Corp. v United Intl. Ins. Co. (95 NY2d 141 [2000]), in which we held that there was an issue of fact as to whether notice of a lawsuit was given "as soon as practicable." But Agoado is distinguishable. In that case, the Secretary of State sent documents to the insureds' lawyer, but the lawyer had died, and the insureds claimed they did not know of his death. Thus, in Agoado it may really have been impracticable for the insureds to find out about the lawsuit and give timely notice to the insurer. In this case, however, it is clear that the insured could have prevented the mishap.

Briggs's argument is essentially that its mistake was understandable; that it caused no prejudice to the insurer; and that the loss of insurance coverage is a harsh result. All this may be true, but it is irrelevant. We have long held, and recently reaffirmed, that an insurer that does not receive timely notice in accordance with a policy provision may disclaim coverage, whether it is prejudiced by the delay or not (Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332, 339 [2005]; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 440 [1972]). While this rule produces harsh results in some cases, it also, by encouraging prompt notice, enables insurers to investigate claims promptly and thus to deter or detect claims that are ill-founded or fraudulent. The Legislature, weighing the competing interests at stake, has recently enacted legislation that strikes a different balance, more favorable to the insured (see L 2008, ch 388, §§ 2, 4 [amending Insurance Law § 3420, applicable to policies issued after January 17, 2009]), but that legislation has not yet become effective. The common law no-prejudice rule applies to this case.

Remember, to disclaim liability coverage based on late notice under occurrence-based liability policies issued, renewed or modified on or after January 17, 2009, insurers will need to demonstrate prejudice from a notification delay of less than two years, i.e., that the delay materially impaired the insurer's ability to investigate or defend the claim.

The New York State Insurance Department has issued a slightly revised version of Circular Letter No. 26 (2008) regarding notice provisions in New York liability insurance policies. Click the image to the right to review that circular letter.

The circular letter reminds liability insurers doing business in New York:

The law takes effect on January 17, 2009 (180 days after it was signed by the Governor on July 21, 2008). The amendments apply to all liability policies (including renewals) issued or delivered in New York on or after the effective date of January 17, 2009, including policies issued in the excess line market. Liability insurers are reminded of the necessity of promptly revising their property/casualty insurance policy forms to comply with the bill’s significant amendments.

To see the minor revisions that were made to the draft letter that the Department circulated last month, click here (revisions are highlighted).

We're 58 days away from the January 17, 2009 implementation/effective date. I know URB has had an amendatory endorsement approved. Has anyone seen an approved ISO form yet?

Rahmanov was injured in an auto accident with a car registered to McKain, driven by McDaniels and insured by State Farm. State Farm disclaimed coverage to McDaniels and his passengers on the grounds of failure to cooperate and fraud, based on its determination that McKain was the victim of identity theft and had not procured the State Farm insurance policy.

Rahmanov filed and demanded arbtiration of his UM claim with his own auto insurer, General Assurance, which commenced this special proceeding for a permanent stay of that arbitration, based on its contention that State Farm should afford liability coverage for the accident. After a framed-issue hearing, New York County Supreme granted the petition and determined that the vehicle operated by McDaniels was uninsured and that State Farm's disclaimer of coverage was valid.

In REVERSING that order, declaring State Farm's disclaimer to be invalid and granting the petition to stay the UM arbitration, the First Department held:

The court improperly determined that State Farm's disclaimer of coverage was valid. The evidence establishes that State Farm did not cancel the subject policy before the date of the accident, and there was no indication that Rahmanov participated in the fraud in obtaining the State Farm policy in McKain's name. Under these circumstances, State Farm was precluded from denying coverage on the ground that the policy was fraudulently obtained (see Matter of Metlife Auto & Home v Agudelo, 8 AD3d 571 [2004]; Taradena v Nationwide Mut. Ins. Co., 239 AD2d 876 [1997]). Furthermore, the disclaimer of coverage, issued approximately three months after State Farm had sufficient knowledge of the reasons why it was disclaiming coverage, was untimely as a matter of law (see e.g. Hartford Ins. Co. v County of Nassau, 46 NY2d 1028 [1979]; Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-89 [2005]; Campos v Sarro, 309 AD2d 888 [2003]).

The First Department has now joined the Second Department in ruling that a personal auto insurer may not deny liability coverage to an injured third party who did not participate in the fraudulent procurement of that insurer's auto policy for the offending vehicle. Compare this ruling to the Fourth Department's recent decision in Matter of GEICO v. Battaglia, however, in which the offending vehcile's personal auto policy was declared void from inception based on material misrepresentation. There was no indication that the claimant was involved in that misrepresentation in Battaglia. Is there a conflict?

Through defense counsel, Country-Wide entered into two stipulations of settlement with plaintiff medical provider, the first in this action in July 2006 to vacate an $18,694.39 November 2005 judgment, and the second so-ordered stipulation in March 2007 in a Nassau County action. The first stipulation provided that ""[p]laintiff agrees to vacate the judgment for assignor Trinece Summer [and] defendant agrees to pay the remaining claims as per the Court's Order of November 4, 2005 within 30 days inclusive of interest up until the day of payment." In the second stipulation, Contry-Wide agreed that plaintiff's right "to enforce voluntary settlements that have been entered into with any of the Insurers," including Country-Wide, would not be impaired.

Country-Wide moved to vacate the November 2005 judgment and stipulation of settlement in this action on the ground that newly discovered evidence existed which "if introduced at trial would probably have produced a different result and which could not have been discovered in time to move for a new trial under section 4404" (CPLR § 5015 [a] [2]). The newly discovered evidence Country-Wide cited included a federal case involving Robert Scott Schepp, M.D., New York State appellate case law involving the plaintiff, a news article from Law.com, as well as the Andrew Carothers, M.D., P.C. trial in the New York City Civil Court, Richmond County, all of which Country-Wide argued established that plaintiff was fraudulently incorporated. Country-Wide also argued that the judgment was the product of "fraud, misrepresentation, or other conduct of an adverse party" (CPLR § 5015 [a] [3]) and that there was no meeting of the minds when the parties entered into the written stipulation of settlement.

Noting that settlement stipulations are judicially favored and should not be lightly set aside, New York City Civil Court Judge George Silver rejected Country-Wide's arguments and denied its motion to vacate, holding:

The only evidence offered by defendant in support of its claim that the settlement was procured through fraud or collusion are the conclusory allegations contained in the affirmations of defendant's attorney. Bare, unsubstantiated allegations such as "[t]he purported judgment premised upon plaintiff's misrepresentations" and "[p]laintiff obtained its judgment under false pretenses" and "[t]he judgment was obtained under collusion by the plaintiff and its attorney since plaintiff's attorney was well aware of several litigations pending against their client based on their client's corporate structure" are insufficient to vacate the stipulation as a product of collusion or fraud. Such speculation also fails to make the requisite showing to reform the stipulation on the ground that it was executed under a mutual or unilateral mistake (see M.S.B Dev. Co., Inc. v Lopes, 38 AD3d 723 [2d Dept 2007] [A party seeking reformation must show clearly that there has been a mistake] [emphasis added]). Moreover, defendant, a sophisticated insurer well-versed in no-fault litigation and represented by able and competent counsel at the time the stipulation was entered into, does not claim that the settlement was a product of duress or that its counsel lacked the authority to enter into the settlement.

Defendant's claim that the stipulation of settlement should be vacated based upon newly discovered evidence of plaintiff's allegedly fraudulent incorporation is also without merit.

Plaintiff and defendant entered into a second stipulation, so-ordered on March 26, 2007, in the Nassau County action in which defendant agreed that plaintiff's right "to enforce voluntary settlements that have been entered into with any of the Insurers," including defendant, would not be impaired. As a party to the Nassau County action defendant was certainly aware on March 26, 2007 that the plaintiff professional corporation may be fraudulently incorporated. Despite that awareness, defendant nevertheless agreed that plaintiff could freely enforce any and all voluntary settlements which plaintiff had previously entered into. This concession by defendant to plaintiff belies defendant's argument that had it been aware of plaintiff's allegedly fraudulent incorporation on July 10, 2006 it would not have entered into the stipulation at issue here. "Courts will not set aside a stipulation . . . simply because, in hindsight, a party decides that the agreement was improvident" (Town of Clarkstown v. M.R.O. Pump & Tank, Inc., 287 AD2d 497, 498, 731 NYS2d 231 [2d Dept 2001]). Therefore, because defendant has failed to meet any of the criteria necessary for the court to vacate the parties' voluntary stipulation of settlement, defendant's Order to Show Cause is denied in its entirety.

RE: MID-TERM CANCELLATION OF POLICIES BASED UPON RESIDENCE BECOMING UNOCCUPIED

STATUTORY REFERENCE: INSURANCE LAW § 3425

The Department has received numerous complaints from consumers whose homeowners’ policies were cancelled after insurers claimed that their residences had become unoccupied. The Department investigated these complaints and determined that a number of insurers had improperly cancelled homeowners’ policies on the ground that an apparently unoccupied residence constituted a “physical change” in the premises. The purpose of this Circular Letter is to review the relevant sections of the Insurance Law governing mid-term cancellations of homeowners’ policies, and to advise insurers of the Insurance Department’s interpretation of the law, so as to ensure that homeowners are protected from improper cancellations.

Homeowners’ policies are “personal lines insurance” under Insurance Law § 3425. That statute governs cancellation and renewal of most non-commercial property/casualty insurance policies. Such policies may not be cancelled in the middle of the policy term, except for certain reasons specified in § 3425, which must be set forth in the notice of cancellation. In particular, Insurance Law § 3425(c)(2)(E) permits a mid-term cancellation of a personal lines insurance policy due to:

physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed...

The Department’s investigation determined that a number of insurers, after apparently determining that residences had become unoccupied, improperly cancelled the owners’ policies on grounds that the lack of occupancy constituted “physical changes” within the meaning of § 3425(c)(2)(E). One investigation revealed that an insurer had improperly cancelled the policy of a husband and wife while they were residing in a nursing home.

Insurance Law § 3425(c)(2)(E) applies only when there has been an actual physical change to the property that renders the property uninsurable in accordance with the insurer’s underwriting guidelines. Physical change occurs only when the dwelling or property has been altered or changed in some manner. (See Opinion of Office of General Counsel No. 04-11-20, November 29, 2004). The fact that an insured is not occupying a residence does not constitute a physical change to the premises within the meaning of § 3425(c)(2)(E).

Similarly, the fact that an insured is not occupying a residence does not, standing alone, constitute grounds for cancellation of a homeowners’ policy under Insurance Law § 3425(c)(2)(D). That provision permits an insurer to cancel coverage upon “discovery of willful or reckless acts or omissions increasing the hazard insured against.” Whether an insured would be justified in cancelling a homeowners’ policy pursuant to § 3425(c)(2)(D) depends on the totality of the circumstances. While lack of occupancy of the premises might be a relevant factor to consider, it is not necessarily a willful or reckless act or omission, which also must be demonstrated.

Nor may insurers use the existence of a foreclosure action as a basis to cancel a homeowners’ insurance policy under Insurance Law § 3425(c)(2)(D) or (E). The filing of a foreclosure action does not constitute a willful or reckless act or omission or increase the hazard insured against, nor does it constitute a physical change in the property.

From Latin prolixus (extended, poured), from liquere (to flow), which is also the source of words such as liquid, liquor, licorice. Now you see the connection -- why consuming liquor makes people prolix.

USAGE:

"No one has ever called him prolix. At a future-war seminar that he sponsored, Mr. Andrew Marshall mumbled a few introductory words and then sat in silence, eyebrows arched, arms folded, for the remaining two days."James Der Derian; The Illusion of a Grand Strategy; The New York Times; May 25, 2001.

A THOUGHT FOR TODAY:

Martyrdom has always been a proof of the intensity, never of the correctness of a belief. -Arthur Schnitzler, writer and doctor (1862-1931)

Love the etymology. Liquor and licorice. Like Sambuca in a double espresso with three beans. Father, Son and Holy Ghost. Prolix, indeed.

Monday, November 17, 2008

Nationwide's insured, Posa was involved in an auto accident with Baughman and left the scene without providing any identifying information to Baughman or the police. Posa submitted an insurance claim to Nationwide, claiming that he damaged his pickup truck by driving into it with his garden tractor. Posa's former girlfriend later informed the police that Posa had been involved in the accident with Baughman's vehicle, and Posa pleaded guilty to leaving the scene of an accident. When it learned of Posa's admission, Nationwide disclaimed coverage based, among other things, Posa's failure to cooperate with Nationwide and his fraudulent misrepresentations concerning the accident. Nationwide then commenced this action for a declaration that it was not obligated to defend or indemnify Posa in Baughman's underlying personal injury action.

In REVERSING Niagara County Supreme's order that denied summary judgment to Nationwide, the Fourth Department held:

We agree with plaintiff that Supreme Court erred in denying that part of its motion for summary judgment seeking a declaration that it has no duty to defend or indemnify Posa in the underlying action. Plaintiff met its burden of establishing Posa's lack of cooperation and misrepresentations, and defendants failed to raise a triable issue of fact (see Nationwide Mut. Ins. Co. v Graham, 275 AD2d 1012, 1013; see generally Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168-169). Posa's "failure to make fair and truthful disclosures in reporting the [accident] constitutes a breach of the cooperation clause [and the fraud and misrepresentation clause] of the insurance policy as a matter of law" (Nationwide Mut. Ins. Co., 275 AD2d at 1013).

New York Central's insured was sued for personal injuries allegedly caused when he negligently opened his car door and struck the underlying plaintiff. New York Central denied liability coverage under the plaintiffs' personal automobile policy based on its position that the incident was not an "automobile accident", and the plaintiffs commenced this declaratory judgment action for defense and indemnification coverage.

In REVERSING Oneida County Supreme's order granting summary judgment to New York Central and declaring that New York Central has a duty to defend the Hendersons in the underlying personal injury action, the Fourth Department held:

"It is well settled that an insurance company's duty to defend is broader than its duty to indemnify. Indeed, the duty to defend is exceedingly broad and an insurer will be called upon to provide a defense whenever the allegations of the complaint suggest . . . a reasonable possibility of coverage . . . If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be" (Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137 [internal quotation marks omitted]; see Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310). Here, the complaint in the underlying action alleges negligent conduct covered by the policy issued by NYCM, and thus we agree with plaintiffs that NYCM has a duty to defend them in that action. We reject NYCM's contention that the allegations in the underlying complaint do not fall within the meaning of the term "automobile accident" in the policy. Indeed, the policy does not define that term, and all insurance policies covering vehicles in New York must, at a minimum, cover "injuries to person or property resulting from negligence in the use or operation of such vehicle" (Vehicle and Traffic Law § 388 [1]; see § 388 [4]; see also 11 NYCRR 60-1.1 [a]). We note in any event that the "act of opening the [vehicle] door in order to exit the vehicle constitutes use and operation' of a vehicle pursuant to Vehicle and Traffic Law § 388" (Cohn v Nationwide Mut. Ins. Co., 286 AD2d 699, 700; see generally Argentina v Emery World Wide Delivery Corp., 93 NY2d 554, 558-561), and thus that act " suggests . . . a reasonable possibility of coverage' " that invokes NYCM's duty to defend plaintiffs in the underlying action (Automobile Ins. Co. of Hartford,7 NY3d at 137).

The court further erred in declaring that NYCM has no duty to indemnify plaintiffs. As noted, the complaint in the underlying action alleges negligent conduct on the part of James Henderson and, if he accidentally or negligently caused Prave's injuries while opening the driver's door, that event may be considered an "automobile accident" within the meaning of the policy (see generally Argentina, 93 NY2d at 558-560; Cohn, 286 AD2d at 700-701). The remaining evidence submitted by NYCM in support of its cross motion is insufficient to meet its burden of establishing that it has no duty to indemnify plaintiffs (see generally Alvarez v Prospect Hosp., 68 NY2d 320, 324), and we thus conclude that the court erred in determining as a matter of law that NYCM had no such duty. Rather, "that determination will abide the trial" in the underlying action (Automobile Ins. Co. of Hartford,7 NY3d at 138).

Based on a prior policy cancellation, Geico commenced this action for a declaration that it was not obligated to defend or indemnify defendant Scott Mayer in an underlying personal injury action. In an attemp to create a question of fact to preclude summary judgment from being granted to Geico, Mayer claimed that he did not recall having received Geico's cancellation notice.

"It is well established that a notice of cancellation is ineffective unless in strict compliance with the requirements of Vehicle and Traffic Law § 313 (1) (a)" (Barile v Kavanaugh, 67 NY2d 392, 399), and plaintiff met its initial burden by demonstrating its strict compliance with the statute, i.e., plaintiff demonstrated that it timely and validly cancelled the policy issued to Mayer based on his nonpayment of premiums (see generally § 313 [1] [a]; Badio v Liberty Mut. Fire Ins. Co., 12 AD3d 229; Matter of State Farm Mut. Auto. Ins. Co. v Morales, 207 AD2d 546; Matter of State Farm Mut. Auto. Ins. Co. v Cherian, 202 AD2d 434, 435). The burden then shifted to defendants-respondents (defendants) "to establish noncompliance with [Vehicle and Traffic Law § 313 (1) (a)] as to form and procedure' " (Cherian, 202 AD2d at 435, quoting Berrios v Lumbermens Mut. Cas. Co., 162 AD2d 365), and defendants failed to meet that burden. Plaintiff submitted "evidence of its office mailing practice sufficient to establish that the notice of cancellation had been mailed and presumably received" (Badio, 12 AD3d at 230). The deposition testimony of Mayer that he did not recall receiving the notice is insufficient to rebut the presumption of receipt (see id. at 231).

On October 19, 2005, plaintiff insured received a notice of claim for personal injuries and damages relating to a July 24, 2005 incident that was alleged to have occurred on property it controlled and maintained. Plaintiff did not forward the notice of claim to its liability insurer or otherwise notify defendant of the occurrence. One year later, plaintiff was served with a summons and complaint in the underlying personal injury action and only then forwarded the summons and complaint to its insurance broker, who promptly forwarded them to defendant. Defendant disclaimed coverage based upon plaintiff's failure to notify it of the occurrence "as soon as practicable" and to "[i]mmediately" send it a copy of the notice of claim, as required by the insurance policy. Plaintiff commenced this declaratory judgment action, and both parties moved for summary judgment.

In AFFIRMING Albany County Supreme's order granting summary judgment to defendant, the Third Department held:

Plaintiff concedes that there is no evidence that it furnished notice of the occurrence to defendant prior to October 2006, a full year after it received the notice of claim. Plaintiff's only excuse for the delay is that its then-general counsel "should have" forwarded the notice of claim to defendant when it was received and that it "assumed" that notice had been so provided. Although "[t]here may be circumstances, such as lack of knowledge that an accident has occurred or a reasonable belief in nonliability, that will excuse or explain delay in giving notice" (White v City of New York, 81 NY2d 955, 957 [1993]; see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d at 441), mere neglect or inadvertence on the part of plaintiff's employee is not a valid excuse (see e.g. Todd v Bankers Life & Cas. Co., 135 AD2d 1066, 1068 [1987]; Tennant v Farm Bur. Mut. Auto. Ins. Co., 286 App Div 117, 120-121 [1955]). Thus, in the absence of a reasonable excuse, plaintiff's one-year delay in notifying defendant of the occurrence was unreasonable as a matter of law (see Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d at 339-340; Centenniel Ins. Co. v Hoffman, 265 AD2d 629, 630 [1999]).

Finally, even had plaintiff provided notice to its broker prior to October 2006, notice to an insurance broker does not constitute notice to the liability carrier (see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d at 442 n 3; Kamyr, Inc. v St. Paul Surplus Lines Ins. Co., 152 AD2d 62, 65 [1989]) and, unlike the circumstances in Jeffrey v Allcity Ins. Co. (26 AD3d 355 [2006]), the notification provisions of the instant policy are not ambiguous as to who must be notified in the event of an occurrence.

On April 9, 2005, Daniel Flynnwas injured while a passenger on an ATV owned by 1637 Realty Corp. and operated by Joseph Picone III, the son of the plaintiff, Joseph Picone, Jr. The incident occurred on a parcel of real property owned by the plaintiff Little Joseph Realty Inc., located at 246 Old Long Eddy Road in Sullivan County. Joseph Picone Jr. owned a parcel of property located at 243 Ridge Road, which contained a mobile home, close to the property where the incident occurred. The ATV was apparently kept at Picone’s property at 243 Ridge Road and was driven to 246 Old Long Eddy Road. The plaintiffs notified their various insurance carriers of the incident, and the insurers subsequently disclaimed coverage. The plaintiffs then commenced this action seeking a judgment declaring that the insurance carriers were obligated to indemnify them for a settlement reached with Flynn. The plaintiffs also asserted a claim against the defendant, JJB Brokerage, Inc., one of the their insurance brokers, alleging breach of fiduciary duty and negligence. The plaintiffs sought to recover costs and attorneys' fees and also sought punitive damages.

JJB Brokerage moved to dismiss the complaint for failure to state a cause of action, and four of the five insurers moved for summary judgment under the following policies:

In response and opposition to JJB Brokerage's motion, plaintiffs cross-moved to amend their complaint, submitting a proposed amended complaint and an affidavit from Joseph Picone, Jr., who claimed that Jack Glickman, an agent for JJB with whom Picone had done insurance business for 20 years, advised Picone not to renew existing insurance policies covering his ATVs because Picone had sufficient coverage in his other policies. In denying JJB's motion and granting plaintiffs' cross motion, Suffolk County Supreme Court Justice Peter Mayer held:

An insurance agent or broker has a common law duty to obtain requested coverage for a client within a reasonable amount of time or inform the client of the inability to do so (see Murphy v Kuhn, 90 NY2d 266; JKT Construction v United States Liab. Ins. Group, 39 AD3d 594 [2d Dept 2007]). Absent a specific request for coverage not already in a client’s policy, or the existence of a special relationship with the client, an insurance agent or broker has no continuing duty to advise, guide or direct a client to obtain additional coverage (see Murphy v Kuhn, supra; JKT Construction v United States Liab. Ins. Group, supra).

Here, JJB contends that it did not owe a fiduciary duty to the plaintiffs and that the plaintiffs have failed to allege any special circumstances. In support of the cross-motion, the plaintiffs submit a proposed * * * This is not a case in which an agent failed to advise a client to obtain additional coverage. Rather, the plaintiffs allege that the broker advised them to cancel existing policies because those policies duplicated other coverage. These allegations, which must be accepted as true on a motion to dismiss (see Leon v Martinez, 84 NY2d 83, 87), are sufficient to state a cause of action (see NWE Corp v Atomic Risk Management, 25 AD3d 349 [1st Dept 2006]). However, the allegations, even if true, do not support a claim for punitive damages (see Grazioli v Encompass Ins. Co., 40 AD3d 696 [2d Dept 2007]; Johnson v Allstate Ins. Co., 33 AD3d 665 [2d Dept 2006]). Accordingly, the motion by JJB is granted solely to the cxtent that the plaintiffs’ demand for punitive damages is dismissed. The plaintiffs’ cross-motion to amend the complaint is granted.

Continental's business auto auto policy defined "auto" as "a land motor vehicle, trailer or semitrailer designed for travel on public roads but does not include ‘mobile equipment’." Vehicle and Traffic Law § 2281 defines an ATV as "any self-propelled vehicle which is manufactured for sale or operation primarily on off-highway trails or off-highway competitions and only incidentally operated on public highways." Thus, held Justice Mayer, an ATV, which is designed for off-road use, was not a covered auto within the meaning of the Continental policy. Although the policy forms included a mobile equipment endorsement, it was blank and identified no ATVs or mobile equipment.

Great Northern's personal package policy, which covered the Ridge Road property as well as other real property and certain motor vehicles, contained an exclusion for "motorized land vehicles" which provided that "we do not cover any damages arising out of the ownership, maintenance, use, loading or towing of any motorized land vehicle * * * This exclusion does not apply to motorized land vehicles * * * used solely on and to service a residence premises shown in the Coverage Summary[.]" Justice Mayer ruled that the exception did not apply because the the ATV was not used solely on a residence premises shown in the coverage summary as required by the policy. The court also ruled that Great Northern's 7-week delay in disclaiming coverage did not violate Insurance Law § 3420(d) because the delay of less than two months to investigate exactly how and where the accident occurred was reasonable.

Foremost's mobile home policy contained an exclusion for liability arising from the use of a recreational land motor vehicle. Although the exclusion did not apply to a vehicle used on the insured’s premises, the accident did not occur on the insured’s Ridge Road premises, but on a separate parcel of property owned by Little Joseph Realty, which was not a named insured under the policy. Therefore, the court found that the exclusion was applicable to preclude liability coverage.

Finally, General Star's CGL policy, the declarations page of which identified 12 properties that the insured owned, rented or occupied and Item 12 listed “246 Old Long Eddy Road & 53 Kelfarns Bridge Rd. Hawkins, NY.” The policy also contained a "Classification Limitation" which provided that the "policy does not apply to any damages for which the insured is legally 1iable, or costs or expenses, arising out of, resulting from, caused or contributed to by any operation or activity that is not described by a CLASSIFICATION shown under item 3 of the Declarations.” The classification shown in item 3 of the policy's declarations for 246 Old Long Eddy Road and 53 Kelfarns Bridge Road was “Dwelling - One Family.” General Star contended that coverage was only available for liability ansing out of a one-family dwelling on the premises, and that the accident involving an ATV would not be covered. However, noting that the record indicated that the loss location was vacant land and there was no dwelling on the premises, Justice Mayer found that "[t]his would appear to create an ambiguity as to what coverage is applicable to the two properties listed in item 12. Since 246 Old Long Eddy Road is vacant, the classification limitation would have no meaning because no activities would be covered under the policy. Under these circumstances, General Star has not established its entitlement to judgment as a matter of law. Accordingly, the motion by General Star is denied."

JJB Brokerage and General Star held in; Continental, Great Northern and Foremost let out.

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Either way, this is where I tell you that what I post on this blog or blawg is not intended and should not be considered to be legal advice. No attorney-client relationship is formed either from your finding your way to these pages, posting comments, or receiving comments in reply. If you need or want legal advice, you're welcome to contact and retain me, especially if your question is one relating to insurance coverage. If quality and correctness are optional to you, however, just turn on a TV, open a newspaper, or take a drive along a nearby highway and jot the numbers down of lawyers who probably don't blawg but spend gobs and gobs more on advertising than I do.

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Although comments are moderated, I take no responsibility for and do not endorse the viewpoints expressed by this blawg's commenters. The viewpoints and opinions I may myself express in this blawg from time to time are my own and do not necessarily reflect more than one-half of the official position of the law firm of Mura & Storm, PLLC. For the record, I respect all judges, named or unnamed in these posts, though not always their judicial acumen or composition. I reserve the right to revise my thinking and recant my occasional disagreement with the logic or language of a court's decision, especially if IAS matches me with any of the mildly maligned magistrates in one of my clients' litigated matters.